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Are we running out of Coal?

12.21.09

Could the coal markets finally have turned the corner in November??? Sure there’s no arguing that there’s oodles of gas in storage, that there’s plenty of coal in utility stockpiles, that load demand is still weak, but for some reason it seems like coal is becoming a little harder to find – especially good quality coal.

It seems the stabilization of the steel industry and better than expected Asian spot coking coal demand has taken some of the crossover coals out of the Eastern steam market - at least easing some of the supply overhang for the time being. One interesting thing to note is the rail to river spread, which continued to widen during November: the prompt month spread settled $5.08, while at the end of October this settled $2.82. Is this significant? If it’s the start of a trend. it likely is as we’ve seen historically that a widening of this spread portends higher overall pricing in CAPP.

PRB is another issue where lackluster demand is still the driver. While we’ve seen great producer discipline in trying to manage supply its difficult to find many buyers looking for tons in Cal ‘10. We’re seeing a little interest in Cal ’11 and Cal ’12 but not enough to get too excited.